What’s the relevance of LTV?Make Text Bigger
Landlord’s Log, the Personal Blog Of Mark Alexander, the Founder of Property118
As the credit crunch continues to affect property prices, the remaining equity in my property portfolio, which I’d not refinanced out, continues to shrink away. The more values fall the closer I get to being in a position of negative equity. Am I at risk though?
I’ve been here before!
I purchased my first property in 1989 for £73,000. By 1992 similar properties were selling for £42,000 and I had a £55,000 mortgage secured against it. The bottom line though was that the rent didn’t reduce and even though mortgage rates hit 15% for a while, I got through it. I still own the property and it’s worth nearly three times what I paid for it.
So the right question to ask then possibly has nothing to do with LTV, surely it must be what is my break even figure? At what level of interest rates do things start to get tight in terms of covering my mortgage payments and all the other costs associated with letting my properties and what reserves do I have behind me to deal with issues as they arise? I have a strategy for that too.
If property values were to fall by 50% would I care? Well certainly not in the short term. I’m only 43 and I have absolutely no intention of selling up for many, many years, if ever. What I’m interested in is whether my property portfolio produces cashflow. I use this calculator to work out the breakeven figures on my portfolio. Why not give it a try and let me know what you think about it by leaving a comment below?
Now let me leave you with a contentious conundrum. Just suppose you could do property deals which stacked up at 200% LTV. When I say stacked up I mean affordability of all costs with sensible stress tests built in. Now assume you could find a mortgage lender daft enough to offer decent terms on a high LTV buy to let mortgage deal at 200% LTV , would you take it?
Please post your answers and rationale in the comments section below.
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